Q3.2) How can the behavior of residential and commercial developers differ?---GENERAL DEVELOPMENT

1. 1. definition

1.1. Development is "the carrying out of building, engineering, mining or other operations in, on, over or under land, or the making of any material change in the use of any buildings or other land"

1.2. “A property may be said to have development potential whenever an element of latent value may be released by the expenditure of capital upon that property"

1.3. Development is the most entrepreneurial function in real estate

1.3.1. ¨CArchitectural Aspects ¨CConstruction Management ¨CFinancing Considerations ¨CMarket Analysis

1.3.2. also the riskiest area of real estate

2. 2. How development impact occupier and investment market

2.1. They can change the urban fabric resulting in knock-on effects on existing properties

2.1.1. --They may have positive effects which increase the value of existing properties --They may encourage further new development --They may have a negative impact

2.2. Two key factors differentiate development projects from standing real estate investments

2.2.1. The process is creating a new asset

2.2.2. Uncertainty of both revenue and cost estimates over the lifetime of the development

2.2.2.1. As the project continues much of this uncertainty will decline as the end picture becomes clearer

2.3. Developments & Operational Leverage

2.3.1. All developments have built into them operational leverage

2.3.1.1. Even if the project is all equity financed with no debt

2.3.1.1.1. the fact that while many of the costs incurred are fixed

2.3.1.1.2. Revenue relevant variables such as rental values and yields can change during the lifetime of the development

3. 3. development process

3.1. land supply

3.2. planning

3.3. finance

3.4. development evaluation includes

3.4.1. -Feasibility analysis -Expected revenues -Costs of project -Discount rate -Time horizon of net returns -Uncertainty

3.4.1.1. development starts

3.5. user market with rents and prices

3.5.1. lag

3.6. investment market with capital values

3.6.1. lag

4. 4. Feasibility

4.1. an underlying focus and aim

4.2. vary

4.2.1. but always under sufficient demand

4.3. The larger the proposed project then more time and possibly capital will be spent on identifying

5. Q3.2) How can the behavior of residential and commercial developers differ?

5.1. 5. development concept: residential

5.1.1. who the target audience is

5.1.2. reflected in the type and size of property

5.1.3. also in relation to factors such as:

5.1.3.1. --Plot size/garden --Number of bedrooms --En-suite Bathrooms --Garage/parking facilities --Facilities in apartment blocks such as concierge services, closed-circuit TV entry systems, private cinema¡¯s etc

5.1.4. Factors to consider:

5.1.4.1. –The anticipated market value and trends in prices –Owner-occupiers or investment buyers ? –Housing tenure trends in the market –Demographic and psychographic trends –Mortgage financing trends –Political boundaries •e.g. school’s, local taxes –Commuting trends –Social factors

5.2. 6. development concept: retail

5.2.1. Population

5.2.1.1. Estimates of future population, demographic and psychographic trends in the catchment area

5.2.2. Income & Buying Power

5.2.2.1. –Employment levels & patterns •e.g. is employment diversified –Retail sale patterns by store type –Hard to obtain exact figures on a localised basis in many countries –May be possible to conduct surveys of competing stores or centres to assess buying power

5.2.3. Tenant Mix

5.2.3.1. –For large centres who the anchor tenants are is key –Overall mix linked to factors such as the demographic mix of the catchment area and disposable income –The tenant mix is key to shaping the character of the development

5.2.4. Competition

5.2.4.1. –Need to visit competing developments & stores –Examine their size and estimated sales per sq.ft –Focus of competing centres

5.2.5. Traffic & Parking Requirements

5.2.5.1. –Public transportation & road patterns –How many shopping trips will the centre attract ? –What proportion of customers use private transport as opposed to public transport, or foot ? –Breakdown of visits according to day & time –What proportion of traffic use each of the possible approach routes –Need to know how many parking spaces are required –If any improvements are necessary to provide an acceptable level of access –Do other people use the parking spaces ?

5.3. 7. Development Concept: Office/Industrial

5.3.1. Bespoke development, pre-let or speculative

5.3.2. Target firms

5.3.2.1. ¨CImportance of factors such as agglomeration economies, competitive clusters and changes in industrial structure ¨CAlso will heavily influence the design

5.3.3. Transportation availability

5.3.4. Psychological and physical boundaries

5.3.4.1. –Many firms reluctant to take space initially in the Gherkin due to Swiss Re’s name being attached in the first instance –Also Swiss Re themselves took the lower floors to encourage both take up and achievable rental values

5.3.5. Linked to underlying demand are factors such as demographic shifts and education level

5.4. 8. Development Concept: Hotels/Resorts

5.4.1. A wide variety of product types:

5.4.1.1. A wide variety of product types:

5.4.1.2. Convention Hotels

5.4.1.3. Commercial Hotels

5.4.1.4. Budget/Economy Hotels

5.4.1.5. All suite or residence hotels

5.4.1.6. Resort Hotels

5.4.2. Who is the target ?

5.4.2.1. Often driven as much by the broad location, i.e. metropolitan area as anything else

5.4.3. Competition

5.5. 9. Development Concept: Mixed-Use

5.5.1. most important factor: ensuring that the project is coherent

5.5.2. Some combinations will work better than others

5.5.3. In recent years a large number of mixed-use hotel developments with either residential or retail attached

5.5.4. Also, the use of entertainment facilities within retail is now fairly standard

6. 5. devision

6.1. Demand Influences

6.1.1. demand price

6.1.2. financing

6.1.3. incentives

6.2. development land

6.2.1. land values

6.2.2. development activity

6.2.2.1. new property

6.2.2.1.1. user and investment market

6.3. supply influences

6.3.1. supply price

6.3.2. land ownership

6.3.3. government controls

7. 6. Supply of Property

7.1. made up of

7.1.1. pre-let

7.1.2. new development let for the first time

7.2. Due to the durability of property re-lets tend to dominate on an absolute level

7.2.1. However, as re-let supply tends to be fairly stable, changes in supply tends to be due to changes in new properties

7.3. Therefore, supply depends largely on development decisions

7.3.1. The lag in the development process has a big impact